We believe in the importance of being an active shareholder. As such, we exercise the voting rights of our clients through an outsourced arrangement with ISS, a third-party proxy voting specialist. Unigestion’s proxy voting is based on a customised policy built upon ISS’ International Sustainable Proxy Voting policy which includes enhancements to address stricter rules for US based firms, as well as the incorporation of ISS’ Climate Voting Services, which uses their Climate Scorecard.
During 2019, Unigestion voted at 95.47%* of meetings and 10,329* items during the year. We voted against management on 8.24% of the votes we cast. Of those votes against management, we sided with the majority of Shareholder Proposals in areas of Health and the Environment, Human Rights and Social issues.
Through our direct engagements with the firms we own we can voice our concerns with management while helping them identify and address important ESG risks. This is very much in keeping with our investment DNA.
We engage with portfolio companies on a variety of issues. We initiate engagement by writing a letter to management voicing our concerns and requesting a response. The intention is that this sparks a dialogue with the company, where we are then able to clarify our position, personalise the engagement, and advocate for change. Examples of issues that we will engage on include: composition, size, independence, election, removal and remuneration of the board of directors and committee members; appointment, remuneration and discharge of auditors; adoption of new articles of association; approval of charitable donations; approval of directors’/officers’ liability and indemnification; corporate governance structures; reorganisations and restructuring; mergers and acquisitions.
We recently decided that we would also engage with companies identified as being within the worst decile of our proprietary ESG scoring, but which have shown signs of improvement over recent years. We have decided to keep these companies in the portfolio on the evidence that they are trying to improve, while engaging with them based on our internal evaluations of their issues. It is promising to engage with these companies as we already own them and value them in other respects.
We have been involved in a multi-year Direct Engagement with the US based poultry producer, Sanderson Farms. As a normal course of business, they use antibiotics across the entirety of their flocks, regardless of the health of the bird. They assert that this is safe and is veterinary approved. One by-product of this approach is that birds put on an additional 15% in weight. Furthermore, shareholders like ourselves are concerned about both the birds becoming resistant to antibiotics as well as the downstream impact on the humans that consume them. We are pleased to report that Sanderson Farms has ceased their practice of including Humanly important antibiotics in this regime. We consider this a partial success of our engagement activity. Engagement is an ongoing process rather than a one-off event and persistence over the long-term is often required to get results.
We recently had an interesting interchange with Starbucks’ Global Director, Environment regarding a proposal for a report on sustainable packaging. We noted that 50% of beverages they serve are now cold and are served in plastic cups with no reported recycled content. They explained that they already have initiatives under way in order to reduce the use of plastic and single use cups and to be more transparent about their sustainable packaging performance. We noted that their ambition of increasing the number of beverages served in reusable cups has also not materialised. Finally, on a positive note, Starbucks announced their “Next Gen Cup Challenge,” a $10 million commitment to develop a compostable, recyclable cup.
Together with a further 450 signatories representing USD 40 trillion of investments, we are participating in the Climate Action 100+ initiative. This five-year project by both asset managers and asset owners aims to engage with 161 of the world’s largest corporate greenhouse gas emitters to curb emissions, strengthen climate-related financial disclosures and improve governance on climate change. In this context, we heard from the CEO of Royal Dutch Shell, which released a joint statement committing themselves to a range of industry leading climate initiatives including carbon reduction targets taking into account scope 3 emissions. They also undertook a review of the lobbying groups that they support to ensure that they are not members of industry associations that oppose positive climate policies. This movement to dig deeper into corporates’ lobbying efforts is a trend that we will follow closely in 2020.
In line with our commitment to engaging in support of Sustainable Development Goal 13, Climate, we have also recently signed on to the PRI’s Investor Expectations Statement on Climate Change for Airlines and Aerospace Companies.
One worrying recent development has been the SEC’s release of a set of draft rules that, if passed, would greatly impact the ability of proxy voting firms, such as ISS, to conduct their business. We rely substantially on their impartial analyses and recommendations on corporate issues as we vote on over 10,000 items per year. We, and a number of PRI signatories, have sent a letter to the SEC in support of the value that proxy voting firms bring to the industry.